Vendor managed inventory in wood processing industries - a case study

Solid structure timber (SST) is an important building material in the wood construction business, in which its production volume is largely related to that respective business. Due to the large variability in the demand and seasonal factors, SST producers' inventories are likely to be simultaneously overstocked for one type of timber and out of stock of another. An inventory policy that ensures a high service level and relatively low stocks is required. In the present paper, we propose the vendor managed inventory (VMI) approach for controlling the stock of deals that are produced at a sawmill and delivered as raw material for SST-production. We evaluate two VMI implementations against the actual inventory management for three different market scenarios. Furthermore, we layout the necessities for reconfiguring the business processes, and subsequently set up an organisational framework within VMI, which is indeed applicable in this segment of the woodworking industry. In our application background, VMI as an inventory control system is able to reduce the overall raw material stock by more than 37% by simultaneously increasing the SST service level.